TABLE OF CONTENTS

 

ARTICLE I DEFINITIONS	1
Section 1.01 Defined Terms	1
Section 1.02 Accounting Terms	5
ARTICLE II APPOINTMENT OF THE AGENT AND RELATED AGREEMENTS	5
Section 2.01 Appointment; Exclusivity	5
Section 2.02 Scope of Agency	5
Section 2.03 Compensation to the Agent	6
Section 2.04 Brokers and Dealers	8
Section 2.05 The Agent’s Unrelated Activities	8
Section 2.06 Best Efforts; Independent Contractor	8
Section 2.07 Issuance and Payment
ARTICLE III SERVICES; STANDARD OF CARE	8
Section 3.01 Services for the Notes	8
Section 3.02 Maintenance of Files and Records	10
Section 3.03 Monthly Reports to the Company	11
ARTICLE IV REPRESENTATIONS AND COVENANTS OF THE COMPANY	12
Section 4.01 Representations, Warranties and Agreements of the Company	12
Section 4.02 Covenants of the Company	19
ARTICLE V REPRESENTATIONS AND COVENANTS OF THE AGENT; CONDITIONS	21
Section 5.01 Representations and Warranties of the Agent	21
Section 5.02 Covenants of the Agent	23
ARTICLE VI CONDITIONS	25
Section 6.01 Conditions of the Agent’s Obligations	25
Section 6.02 Conditions of the Company’s Obligations	30
ARTICLE VII INDEMNIFICATION AND CONTRIBUTION	31
Section 7.01 The Company’s Indemnification of the Agent	31
Section 7.02 The Agent’s Indemnification of the Company	32
Section 7.03 Notice of Indemnification Claim	32
Section 7.04 Contribution	33
Section 7.05 Notice of Contribution Claim	34
Section 7.06 Reimbursement	34
Section 7.07 Arbitration	34
Section 7.08 Intellectual Property Infringement	35
Section 7.09 Confidentiality	35
ARTICLE VIII TERM AND TERMINATION	36
Section 8.01 Effective Date of this Agreement	36
Section 8.02 Termination Prior to Initial Closing Date	36

 

 

Section 8.03 Notice of Termination	36
Section 8.04 Termination After Initial Closing Date	36
Section 8.05 Termination Without Termination of Offering	37
ARTICLE IX MISCELLANEOUS	37
Section 9.01 Survival	37
Section 9.02 Notices	38
Section 9.03 Successors and Assigns; Transfer	38
Section 9.04 Cumulative Remedies	39
Section 9.05 Attorneys’ Fees	39
Section 9.06 Entire Agreement	39
Section 9.07 Choice of Law; Venue	39
Section 9.08 Rights to Investor Lists	39
Section 9.09 Waiver; Subsequent Modification	39
Section 9.10 Severability	39
Section 9.11 Joint Preparation	40
Section 9.12 Captions	40
Section 9.13 Counterparts	40
Section 9.14 Third Party Contractors	40

 

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DISTRIBUTION AND MANAGEMENT AGREEMENT

 

THIS DISTRIBUTION AND MANAGEMENT AGREEMENT is entered into as of this           day of                            , 2006 by and between Winmark Corporation, a Minnesota corporation (the “Company”), and Sumner Harrington Ltd., a Minnesota corporation (the “Agent”).

 

RECITALS

 

WHEREAS, the Company proposes to register and publicly offer and sell an aggregate principal amount of up to $50,000,000 of renewable unsecured subordinated notes of the Company; and

 

WHEREAS, subject to the termination rights set forth herein, the Company desires to appoint the Agent to act as the Company’s exclusive selling agent in connection with the offer, sale and renewal of such notes on a best effort basis and as the Company’s servicing agent to provide certain administrative services with respect to the notes, and Agent desires to accept such duties, all as provided for by the terms of this Agreement.

 

NOW, THEREFORE, in consideration of the above and for other good and valuable consideration, receipt of which is acknowledged, and in consideration of the mutual promises, covenants, representations and warranties hereinafter set forth, the parties hereto agree as follows:

 

ARTICLE I
DEFINITIONS

 

Section 1.01 Defined Terms . Whenever used in this Agreement, the following terms have the respective meanings set forth below. The definitions of such terms are applicable to the singular as well as to the plural forms of such terms.

 

(a)            Accepted Note Practices . As applicable to the context in which this term is used, those procedures and practices with respect to the offering, marketing, selling, servicing and administration of the Notes that satisfy the following: (i) meet at least the same demonstrable standards that Agent would follow in exercising reasonable care in offering, marketing, selling, servicing and administering similar programs for publicly offered notes or securities; (ii) comply with all Governmental Rules; (iii) comply with the provisions of this Agreement and the Indenture; and (iv) give due consideration to the accepted standards of practice of prudent investment banking firms that offer, market, sell, service or administer comparable programs for publicly offered notes or securities and the reliance of the Company on the Agent for the offering, marketing, selling, servicing and administration of the Renewable Note Program.

 

(b)            Agent . Sumner Harrington Ltd., a Minnesota corporation, or its successors in interest or assigns, if approved by the Company as provided in Sections 5.02(c) and 9.03, below.

 

 

(c)            Agreement . This Distribution and Management Agreement, including any exhibits or attachments hereto, as originally executed, and as amended or supplemented from time to time in accordance with the terms hereof.

 

(d)            Business Day . Any day other than (a) a Saturday or Sunday or (b) another day on which banking institutions in the State of Minnesota are authorized or obligated by law, executive order, or governmental decree to be closed.

 

(e)            Commission or SEC . The Securities and Exchange Commission.

 

(f)             Company . Winmark Corporation, or its successors or assigns, if approved by Agent as provided in Section 9.03, below.

 

(g)            Due Period . The monthly, quarterly, semi-annual, or annual periods, or the full term of the Note if interest is due at maturity, for which scheduled payments of interest will be paid on any Note.

 

(h)            Exchange Act . The Securities Exchange Act of 1934, as amended, and as hereafter amended, and the rules and regulations thereunder.

 

(i)             Governmental Rules . Any law, rule, regulation, ordinance, order, code, interpretation, judgment, decree, policy, decision or guideline of any governmental agency, court or authority, including those of the NASD.

 

(j)             Holder . The registered owner of any Note as it appears on the records of the Registrar, including any purchaser or any subsequent transferee or other holder thereof.

 

(k)            Incorporated Documents . All documents that, on or at any time after the effective date of the Registration Statement, are incorporated by reference therein, in the Prospectus, or in any amendment or supplement thereto.

 

(l)             Indenture . That certain Indenture dated on or about                               , 2006, by and between the Company and the Trustee with respect to the Notes.

 

(m)           Initial Closing Date .                               , 2006, or such later date as may be agreed by the Company and the Agent.

 

(n)            Investor . Any person who purchases Notes or who contacts the Agent expressing an interest in purchasing the Notes or requesting information concerning the Notes.

 

(o)            Material Agreement . With respect to a person, any agreement, contract, joint venture, lease, commitment, guaranty or other contractual arrangement or any bond, debenture, indenture, mortgage, deed of trust, loan or security agreement, note, instrument or other evidence of indebtedness, which in the case of any of the foregoing is material to the business, assets, operations, condition or prospects, financial or otherwise,

 

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of such person or which is material to the ability of such person to perform its obligations under this Agreement.

 

(p)            NASD . National Association of Securities Dealers, Inc.

 

(q)            Note Confirmation . With respect to the issuance and ownership of the Notes in book-entry form, an appropriate written confirmation of the issuance and ownership or transfer of ownership of a Note to a Holder, the format of which shall comply with the provisions of the Indenture.

 

(r)             Note Portfolio . The aggregate of individual Notes, as it exists from time to time, which, unless the context otherwise requires or provides, determined by the principal balances of the outstanding Notes.

 

(s)            Notes . The renewable unsecured subordinated notes of the Company that are being offered and sold pursuant to the Registration Statement and that have an aggregate principal amount up to $50,000,000 and such other terms as described in the Prospectus, and any additional principal amount of the same or similar notes as may be registered from time to time pursuant to the Registration Statement.

 

(t)             Offering . The offer and sale of the Notes in accordance with the terms and subject to the conditions set forth in the Registration Statement.

 

(u)            Paying Agent . Wells Fargo Bank, National Association or its successors or assigns, or such other paying agent with respect to the Notes as may be subsequently appointed by the Company pursuant to the Indenture.

 

(v)            Paying Agent Agreement . That certain agreement by and between the Company and the Paying Agent relating to the Company’s engagement of the Paying Agent to act as the paying agent for the Notes.

 

(w)           Paying Agent Fees . All fees and expenses payable to the Paying Agent in accordance with the Paying Agent Agreement.

 

(x)             Proposal . That certain proposal made by the Agent to, and accepted by, the Company dated November 30, 2005 with respect to the Renewable Note Program, as amended.

 

(y)            Proprietary Rights . All rights worldwide in and to copyrights, rights to register copyrights, trade secrets, inventions, patents, patent rights, trademarks, trademark rights, confidential and proprietary information protected under contract or otherwise under law, and other similar rights or interests in intellectual or industrial property.

 

(z)             Prospectus . The prospectus included in the Registration Statement at the time it was declared effective by the Commission, as supplemented by all prospectus supplements (including interest rate supplements) related to the Notes that are filed with the Commission pursuant to Rules 424(b) or (c) under the Securities Act. References to

 

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the Prospectus shall be deemed to refer to and include the Incorporated Documents to the extent incorporated by reference therein.

 

(aa)          Redemption Payment . The payment of principal plus any accrued and unpaid interest that is being made at the discretion of the Company in accordance with the Indenture.

 

(bb)          Registration Statement . That certain Registration Statement on Form S-1 (File No.) of the Company with respect to the Notes filed with the Securities and Exchange Commission under the Securities Act on or about                               , 2006, as amended and declared effective by the Commission, including the respective copies thereof filed with the Commission. References to the Registration Statement shall be deemed to refer to and include the Incorporated Documents to the extent incorporated by reference therein.

 

(cc)          Renewable Note Program . The marketing, subscription and sale, administration, customer service and investor relations, registration of ownership, reporting, payment, repurchase, redemption, renewal and related activities associated with the Notes.

 

(dd)          Repurchase Payment . The payment of principal plus any accrued and unpaid interest, less any penalties upon the repurchase of any Note, that is being made at the request of the Holder in accordance with the Indenture.

 

(ee)          Scheduled Payment . For any Due Period and any Note, the amount of interest and/or principal indicated in such Note as required to be paid by the Company under such Note for the Due Period and giving effect to any rescheduling or reduction of payments in any insolvency or similar proceeding and any portion thereof.

 

(ff)            Securities Act . The Securities Act of 1933, as amended, and as hereafter amended, and the rules and regulations thereunder.

 

(gg)          Subscription Agreement . A subscription agreement entered into by a Person under which such Person has committed to purchase certain Notes as identified thereby, in such form and substance as mutually agreed by the parties and as filed as an exhibit to the Registration Statement.

 

(hh)          Trust Account. The trust account established by the Trustee pursuant to the Indenture.

 

(ii)            Trust Indenture Act . The Trust Indenture Act of 1939, as amended, and as hereafter amended, and the rules and regulations thereunder.

 

(jj)            Trustee . Wells Fargo Bank, National Association, or its successors or assigns, or any replacement Trustee under the terms of the Indenture.

 

(kk)          Trustee’s Fees . All fees and expenses payable to the Trustee in accordance with the Indenture.

 

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Section 1.02 Accounting Terms . Unless otherwise specified in this Agreement, all accounting terms used in this Agreement shall be interpreted, all accounting determinations under this Agreement shall be made, and all financial statements required to be delivered by any person pursuant to this Agreement shall be prepared, in accordance with U.S. generally accepted accounting principles, as in effect from time to time and as applied on a consistent basis. To the extent such principles do not apply to certain reports or accounting practices of the Agent, the parties will mutually agree on the accounting practices and assumptions.

 

ARTICLE II
APPOINTMENT OF THE AGENT AND RELATED AGREEMENTS

 

Section 2.01 Appointment; Exclusivity . On the basis of the representations, warranties and agreements herein contained, and subject to the terms and conditions set forth herein and in the Prospectus during the term of this Agreement, the Company appoints the Agent as its exclusive agent for purposes of selling, including the offer and sale of the Notes, and servicing, including the servicing and administration of the Notes, in each case, under the Renewable Note Program upon the terms and conditions set forth herein, including, without limitation, compliance and conformity with Accepted Note Practices and Governmental Rules, and the Agent agrees to use its best efforts as such agent to offer and sell the Notes to Investors until the later of the termination of the Offering or the sale of all of the Notes, or until the termination of this Agreement, if earlier. In connection with the administration of the Renewable Note Program, the Agent will carry out the duties provided for herein and as described in the Prospectus as being carried out by the Agent. During the term of this Agreement, the Company agrees to direct to the Agent all inquiries it receives with respect to sales of the Notes or administration of the Renewable Notes Program, as applicable.

 

Section 2.02 Scope of Agency . In the performance of its duties hereunder, the Agent shall have full power and authority to take any and all actions for purposes of selling, including the offer and sale of Notes, and servicing, including the servicing and administration of the Notes, in each case, under the Renewable Note Program that the Agent, in its discretion, deems necessary or appropriate, subject in all respects to compliance and conformity with Accepted Note Practices and Governmental Rules and the Prospectus. Such discretion shall include, without limitation, the right to accept or reject Subscription Agreements, waive or reduce early repurchase penalties when appropriate, change interest payment dates, enforce early repurchase penalties and allow prepayment of Notes, with or without penalty, subject, in each case to such limitations or conditions as may be provided in the Indenture. Notwithstanding the foregoing, the Agent’s authority to take any action on the Company’s behalf, other than the rejection of Subscription Agreements, which has an immediately discernable, direct, financial impact of $500 or more shall be subject to receiving the prior written consent of the Company. In the performance of its duties hereunder, the Agent shall (i) act as the agent of the Company in connection with the Renewable Note Program; (ii) hold, in trust and as custodian, all Subscription Agreements, notices or other documents received by it in connection with the Renewable Note Program for the sole and exclusive use and benefit of the Company; and (iii) make dispositions of the items in clause (ii) only in accordance with this Agreement, the Indenture or at the written direction of the Company. Except as set forth herein with respect to the Renewable Note Program, the Agent shall have no authority, express or implied, to act in any manner or by any means for or on behalf of the Company.

 

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Section 2.03 Compensation to the Agent .

 

(a)            The Agent’s Fees and Commissions . In consideration of the agreement of the Agent to provide its services as set forth in this Agreement, the Company will pay the Agent the following amounts:

 

(i)             a commission as set forth in Exhibit B to the Proposal (which exhibit is hereby incorporated by reference), which shall be payable in consideration for the Agent’s selling and marketing of Notes; and

 

(ii)            an annual portfolio management fee equal to 0.25% of the weighted average daily principal balance of the Note Portfolio, to be invoiced monthly as provided below, which shall be payable in consideration for the administrative services provided by the Agent; provided, however, that in no event will the Company pay or cause to be paid aggregate portfolio management fees totaling more than 2.25% of the aggregate principal amount of the Notes pursuant to the provisions of this Section 2.03(a)(ii).

 

(b)            The Agent’s Expenses . The Company agrees with the Agent that whether or not this Agreement is terminated or cancelled or the sale of the Notes hereunder is consummated, and regardless of the reason for or cause of any such termination, cancellation, or failure to consummate, the Company will pay or cause to be paid to the applicable persons the following, whether incurred prior or subsequent to the date of this Agreement:

 

(i)             subject to the prior written approval by the Company and in addition to such other costs specifically provided for below, all reasonable out-of-pocket costs of the Agent or its affiliates incurred in connection with the Offering, including, but not limited to, designing, printing and mailing all offering and advertising materials, document fulfillment services, advertisements in newspapers, on the radio, on the internet and through direct mail, operating a toll-free telephone number, and assisting the Company with creating a web site, including any costs of a web developer or other third party consultants;

 

(ii)            all reasonable fees and expenses of persons (other than the Agent and its affiliates), including, without limitation, fees and expenses of the Company’s auditors and legal counsel, in connection with the preparation, printing, filing, and delivery of the Registration Statement (including the financial statements therein and all amendments, schedules, and exhibits thereto), the Prospectus, and any amendment thereof or supplement thereto;

 

(iii)           to the extent applicable, all reasonable fees and expenses incurred in connection with the qualification of the Notes for offer and

 

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sale under the securities or Blue Sky laws of the states and other jurisdictions which the Agent may designate (with the prior approval of the Company) in accordance with the terms herewith;

 

(iv)           all reasonable out-of-pocket costs incurred by the Agent or any other contractor in connection with the preparation, printing, filing, and delivery of maturity and renewal notices, quarterly statements, newsletters and any other materials to be sent to Holders in connection with the Notes or the Offering;

 

(v)            all reasonable fees and expenses of the Agent’s legal counsel related to the Offering and the ongoing servicing and administration of the Renewable Note Program as provided herein;

 

(vi)           all fees and expenses of the Trustee and the Paying Agent in connection with the Notes, and

 

(vii)          all reasonable out-of-pocket costs incidental to the performance of the Agent’s obligations hereunder with respect to the ongoing servicing and administration of the Renewable Note Program that are not otherwise specifically described herein.

 

The provisions of this Section are intended to relieve the Agent from the payment of reasonable fees, expenses and out-of-pocket costs that the Company hereby agrees to pay and shall not impair or limit any of the other obligations of the Company hereunder to the Agent; provided, however, that except as provided above regarding reimbursement of expenses in the event of termination of this Agreement (and in Section 2.03(d) below) (which reimbursement obligation shall be limited to actual accountable out-of-pocket expenses) and except for fees payable directly to the Trustee, in no event will the Company pay or cause to be paid amounts totaling more than 0.75% of the aggregate principal amount of the Notes pursuant to the provisions of this Section 2.03(b).

 

(c)            Payment of Fees and Commissions . On the last Business Day of each month, or as soon thereafter as practicable, the Agent shall provide the Company with a written invoice for such month’s fees and commissions that are payable with respect to Notes issued up to the last five Business Days of such month, and Notes issued in the last five Business Days of the immediately preceding month that are, in each case, not rescinded. Such commissions and fees will be due and payable by the later of the 15 ^th day of every month or 15 days after the date such invoice is received.

 

(d)            Prior Payments . The parties hereby acknowledge prior payment of $75,000 to the Agent as a deposit against its due diligence costs, which amount was paid upon execution of the Proposal. Upon the request of the Company, the Agent will provide a written accounting of this deposit to the Company. Any remaining funds from this deposit will be applied against the Agent’s expenses related to marketing and administering the Notes. To the extent that this Agreement is terminated, the Agent will

 

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promptly refund the excess of any unused portion of such funds over amounts otherwise owed hereunder.

 

Section 2.04 Brokers and Dealers . The Agent may, in its sole discretion and at no additional obligation or expense to the Company, and subject to compliance with all applicable Governmental Rules, use the services of other brokers or dealers who are members in good standing of the NASD in connection with the offer and sale of the Notes. The Agent may enter into agreements with any such broker or dealer to act as its sub-agents for the sale of the Notes and the Agent shall be solely responsible for the payment of any portion of the Agent’s compensation hereunder to such broker or dealer, and be solely responsible for any subagents’ compliance with Governmental Rules in connection with the offer and sale of the Notes.

 

Section 2.05 The Agent’s Unrelated Activities . The Company agrees that the Agent may sell other notes or securities in offerings similar to the Offering for other issuers during the course of the Offering, and the Agent (and Sumner Harrington Agency, Inc., an affiliate of the Agent) may advertise other notes or securities of other issuers on websites, in print, by radio, or by any other means and at such times as they may determine. The Agent shall have the right to advertise or otherwise disclose to unrelated prospective issuers, at its own expense, its relationship with the Company, the services it provides in connection with the Notes and the amount of money that it raised through the Offering and the performance of the Offering.

 

Section 2.06 Best Efforts; Independent Contractor . Anything to the contrary notwithstanding, the Agent shall have no obligation to sell any minimum principal amount of Notes or to purchase Notes for its own account, for resale or for any other purpose, but rather the Agent shall use its best efforts as selling agent in connection with the Offering of the Notes. During the term of this Agreement, all actions taken by the Agent pursuant to this Agreement shall be in the capacity of an independent contractor, all sales of Notes conducted by the Agent shall be solely for the account and at the risk of the Company, and in no event shall the Agent have any obligations under the Notes.

 

Section 2.07 Issuance and Payment . The Notes shall be issued pursuant to the Indenture and all Scheduled Payments, Redemption Payments and Repurchase Payments shall be made by automated clearing house (i.e., ACH) remittance from the Trust Account by the Paying Agent in accordance with the Paying Agent Agreement and the Indenture.

 

ARTICLE III         
SERVICES; STANDARD OF CARE

 

Section 3.01 Services for the Notes . The services to be provided to the Company by the Agent pursuant to and during the term of this Agreement shall include the following:

 

(a)            Note Structure and Interest Rates . During the term of this Agreement, the Agent shall advise the Company regarding the structure of the Notes and provide sample document forms. Throughout the Offering, the Agent shall assist the Company in determining appropriate Note terms and interest rates based on current market conditions and the Company’s capital goals.

 

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(b)            Subscription, Sale and Ownership . During the term of this Agreement, the Agent shall review and process each Subscription Agreement for the Notes received from an Investor with the objective of determining whether (i) such agreement is complete and accurate in all material respects, including, without limitation, the execution thereof by such Investor, (ii) an investment in the Notes is suitable for such Investor under applicable Governmental Rules, (iii) such Investor timely remits the proper purchase price for the Notes in accordance with the Subscription Agreement, and (iv) the principal amount, interest rate and term to maturity and any other material terms of the Notes are verified for accuracy and completeness. Upon delivery by each Investor of a completed Subscription Agreement for Notes and full payment of the principal amount of such Notes in accordance with the Investor’s Subscription Agreement, and subject to the prior written consent of the Company if required pursuant to Section 2.02 (which, for the avoidance of doubt, may be given in the form of general directives to sell up to a particular aggregate amount of Notes) the Agent shall promptly (i) accept or reject such Subscription Agreements on the Company’s behalf based upon such factors as the Agent shall determine, including, without limitation, the suitability of any investment in the Notes by the proposed Investor under applicable Governmental Rules, (ii) verify that the payment of the principal amount of such Investor’s accepted subscription for the Notes is being remitted to the Company in accordance with the Subscription Agreement in an account established by the Company for such purpose or in such other manner as may be directed by the Company from time to time, and (iii) remit to the Trustee electronic or hard copies of all accepted Subscription Agreements and related records as may be reasonably requested by the Trustee, including without limitation, a record of each deposit relating to the payment of the subscription amount of the Notes. Pursuant to the preceding sentence, Notes shall be issued by the Agent on the Company’s behalf in book-entry form only and the Agent shall deliver a Note Confirmation to each Holder with respect to such Holder’s respective accepted Subscription Agreement and the receipt of full payment for such Holder’s Notes. In the event that the Agent rejects a Subscription Agreement, the Agent shall promptly return the Subscription Agreement and the related subscription amount to the related Investor. The Company hereby appoints the Agent, and the Agent hereby accepts such appointment, as its initial Registrar (as such term is defined in the Indenture) for the Notes pursuant to the terms of the Indenture. For so long as the Agent shall serve as the Registrar for the Notes, the Agent shall perform, in accordance with the terms of the Indenture, all of the duties and obligations of the Registrar under the Indenture, including, without limitation, the obligation to maintain a book-entry registration and transfer system for the ownership of the Notes in accordance with the terms of the Indenture.

 

(c)            Investor Relations and Reporting . During the term of this Agreement and in exchange for the annual portfolio management fee, the Agent, in conjunction with the Trustee, shall manage all aspects of the customer service and investor relations functions with respect to the Offering, including, but not limited to, handling all inquiries from Investors, mailing investment kits, delivering to each Investor the Prospectus and Subscription Agreement, meeting with Investors, processing Subscription Agreements, responding to all written or telephonic questions by Investors and Holders relating to the Notes, recording changes in Holders’ addresses or accounts, preparing and issuing maturity and renewal notices, quarterly statements, newsletters, reports and analyses to

 

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Holders and to the Company, directing the Paying Agent to make Scheduled Payments, Repurchase Payments and Redemption Payments to Holders in a timely manner, and directing the Paying Agent to issue Form 1099INT’s to Holders as required by law. In addition, the Agent shall provide the Trustee (and copy the Company) with management reports regarding the Notes as required under the Indenture.

 

(d)            Web Site Development . Subject to compliance and conformity with Accepted Note Practices by the Agent and all Governmental Rules, the Agent (or a third party service provider working at the Agent’s direction) shall assist the Company in developing a dedicated Internet web site separate from the Company’s corporate site to allow Investors to view online and download copies of the Offering documents (including the Prospectus and Subscription Agreement) and marketing materials that are included in the investment kit or comparable information.

 

(e)            Ownership of Web Pages . Any and all web pages developed or maintained by the Agent in connection with the marketing and selling of the Notes (the “Web Pages”), and all associated Proprietary Rights, shall be owned exclusively by the Agent; provided, however, it is expressly acknowledged and agreed that the Company shall retain, and the Agent shall not hereby acquire, any Proprietary Rights in the Company’s logos, corporate colors, trademarks, trade names, and slogans, any descriptions of the Company’s business. The Agent hereby grants the Company a nonexclusive, perpetual, worldwide license to use the Web Pages for the purpose of marketing and selling the Notes.

 

Section 3.02 Maintenance of Files and Records . The Agent shall establish and maintain at all times during the term of this Agreement, and for any period required by Governmental Rules, files and records (including, without limitation, computerized records) regarding the Notes and the Note Portfolio, with full and correct entries of all transactions or modifications in a reasonably secure, up-to-date manner and in accordance with the following:

 

(a)            Location . All Note and Note Portfolio files and records shall be stored and maintained at the Agent’s principal place of business, or other location as designated by the Agent. The Agent shall keep in its files all correspondence received or sent regarding each Note, each Investor, and each Holder, whether upon any purchase or transfer of a Note.

 

(b)            Original Documents . The Agent will store all original Subscription Agreements, Note Confirmations, correspondence from Investors and Holders and other materials relating to the Renewable Note Program in a reasonably secure manner at the Agent’s principal offices or such other location as may be agreed upon with the Company. The Agent shall exercise due care in handling and delivering the original documents and the other documents in the Note files and records. The Agent shall not grant or allow any person an interest in original documents or rights thereunder, and all original documents in the possession of the Agent shall be deemed to be in the possession of the Company.

 

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(c)            Examination . At any time during the Agent’s normal business hours, the Company and its agents and representatives may physically inspect any documents, files or other records relating to the Renewable Note Program and discuss the same with the Agent’s officers and employees. The Agent shall supply copies of any such documents, files, or other records upon the request of the Company, as soon as is reasonably and commercially practicable at the Company’s cost and expense.

 

(d)            Retention . Unless otherwise requested by the Company, or unless otherwise required by Governmental Rules, the Agent shall retain, with respect to each Note, for a period of 24 months from the date the Note is fully paid, all records, files and documents related to each such Note. At the end of such 24-month period, unless otherwise directed by the Company, all such items shall be transferred to the Company, or to a third party as designated by the Company, at the Company’s sole cost and expense. The Agent shall be permitted to retain copies of any such documents for its own files for its own account and at its own expense. The Agent shall maintain the privacy of the Investors and Holders in accordance with all applicable Governmental Rules.

 

(e)            Return . If this Agreement is terminated, the Agent shall promptly deliver to the Company or its designee, as the case may be, all Note files and records (including, without limitation, copies of computerized records and servicing and other software, except as may be prohibited by any third party contract or license) related to the selling and servicing of the Notes and all monies collected by it relating to the Renewable Note Program (less any fees or expenses due to the Agent). The Agent shall be entitled to make and keep copies of such records, at its cost and expense. In addition to delivering such data and monies, the Agent shall use its best efforts to effect the orderly and efficient transfer of the selling and servicing of the Notes to the Company or other party designated by the Company to assume responsibility for such selling and servicing, including, without limitation, directing Holders to remit all repurchase or other notices to the address designated by the Company. All costs of conversion and transfer of such records to the Company or another agent shall be paid by the Company.

 

(f)             Security . The parties shall take appropriate security measures to protect customer nonpublic personal information (“NPI”), as defined in the Gramm-Leach-Bliley Act of 1999, Title V, and its implementing regulations, against accidental or unlawful destruction and unauthorized access, tampering, and copying during storage in either party’s computing or paper environment. Access to NPI must be restricted to only the personnel that have a business need relating to the Renewable Note Program. NPI must be stored in a secured format within all systems at both parties’ location and any other locations where the data may reside. Transmission of such NPI between the parties or vendors must be done in a secure manner, in a method mutually agreed upon by both parties. Each party will engage appropriate and industry-standard measures necessary to meet information security guidelines as required by the Gramm-Leach-Bliley Act, Title V and its implementing regulations as applicable to such party to effectuate this Agreement.

 

Section 3.03 Information to the Company . As agreed by the parties, the Agent shall make reports and analyses available to the Company regarding the status of the Note Portfolio,

 

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the marketing efforts and the amount of Notes remaining available for issuance under the Registration Statement. The Agent shall also provide interim or custom reports at the Company’s request as is commercially reasonable, including, without limitation, a weekly update via email identifying new Holders by name, address and principal amount of Notes purchased. The Agent shall also furnish statements, reports and information to the Paying Agent to the extent that the Company is required to furnish or cause to be furnished such statements, reports or information to the Paying Agent under the Paying Agent Agreement.

 

ARTICLE IV
REPRESENTATIONS AND COVENANTS OF THE COMPANY

 

Section 4.01 Representations, Warranties and Agreements of the Company . The Company represents and warrants to and agrees with the Agent as follows, which representations and warranties shall be deemed to be made continuously from and as of the date hereof until this Offering is terminated and all then outstanding Notes have been paid in full or such earlier date that this Agreement has been terminated, except for those representations and warranties that address matters only as of a particular date, which representations and warranties shall be deemed to be made as of such date.

 

(a)            The Company satisfies all of the requirements for the use of Form S-1 with respect to the offer and sale of securities as contemplated by the Offering. The Commission has not issued any order preventing or suspending the use of the Registration Statement or Prospectus and no proceeding for that purpose has been instituted or, to the Company’s knowledge, threatened by the Commission or the securities authority of any state or other jurisdiction.

 

(b)            The Registration Statement, in the form in which it became effective and also in such form as it may be when any post-effective amendment thereto shall become effective, and the Prospectus, and any supplement or amendment thereto when filed with the Commission under Rule 424 under the Securities Act, complied or will comply with the provisions of the Securities Act and the Trust Indenture Act, and did not or will not at any such times contain an untrue statement of material fact or omit to state a material fact required to be stated therein or necessary to make the statements made therein, in light of the circumstances in which they were made, not misleading, except that this representation and warranty does not apply to: (i) any statements in, or omissions from the Agent Disclosure Statements (as defined in Section 5.01(f) below) in the Registration Statement or the Prospectus, or any amendment thereof or supplement thereto; or (ii) statements in or omissions from the Registration Statement (or any amendment thereto) related to or resulting from the specific terms of the Offering, which terms are included in the Prospectus.

 

(c)            The Incorporated Documents previously filed, at the time they were filed, complied in all material respects with the requirements of the Exchange Act, and all subsequently filed Incorporated Documents will, at the time they are filed, comply in all material respects with the requirements of the Exchange Act. No such previously filed Incorporated Document, when filed, contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make

 

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the statements therein not misleading; and no such further Incorporated Document, when filed, will contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein not misleading, except that this representation and warranty does not apply to the extent that any misstatement or omission in any Incorporated Document is superseded by a subsequent Incorporated Document, but in such case only with respect to the period from and after the filing of the subsequent Incorporated Document.

 

(d)            The Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of the State of Minnesota, with full power and authority to own, lease and operate its properties and conduct its business as described in the Registration Statement, the Prospectus and the Incorporated Documents. The Company is duly qualified to do business and is in good standing in each jurisdiction in which the ownership or lease of its properties or the conduct of its business requires such qualification and in which the failure to be qualified or in good standing would have a material adverse effect on the condition (financial or otherwise), earnings, operations or business of the Company and, to the best of the Company’ s knowledge, no proceeding has been instituted in any such jurisdiction revoking, limiting or curtailing, or seeking to revoke, limit or curtail, such power and authority or qualification.

 

(e)            Each subsidiary of the Company has been duly incorporated or organized and is validly existing in good standing under the laws of the jurisdiction of its incorporation or organization, with full power and authority to own, lease and operate its properties and conduct its business as described in the Registration Statement, the Prospectus and the Incorporated Documents. Each such subsidiary is duly qualified to do business and is in good standing in each jurisdiction in which the ownership or lease of its properties or the conduct of its business requires such qualification and in which the failure to be qualified or in good standing would have a material adverse effect on the condition (financial or otherwise), earnings, operations or business of the Company and, to the best of the Company’ s knowledge, no proceeding has been instituted in any such jurisdiction revoking, limiting or curtailing, or seeking to revoke, limit or curtail, such power and authority or qualification.

 

(f)             The Company and each subsidiary has operated and is operating in material compliance with all authorizations, licenses, certificates, consents, permits, approvals and orders of and from all state, federal and other governmental regulatory officials and bodies necessary to own its properties and to conduct its business as described in the Registration Statement, the Prospectus and the Incorporated Documents, all of which are, to the best of the Company’s knowledge, valid and in full force and effect. The Company and each subsidiary is conducting its business in substantial compliance with all applicable laws, rules and regulations of the jurisdictions in which it is conducting business, and the Company and each subsidiary is not in material violation of any applicable law, order, rule, regulation, writ, injunction, judgment or decree of any court, government or governmental agency or body, domestic or foreign, having jurisdiction over the Company or any such subsidiary or their respective over its properties.

 

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(g)            The Company and each subsidiary is not in violation of its certificate or articles of incorporation or bylaws (or similar governing documents) or in default in the performance or observance of any obligation, agreement, covenant or condition contained in any Material Agreement to which it is a party or by which it or its properties are bound.

 

(h)            The Company has full requisite power and authority to enter into this Agreement and perform the transactions contemplated hereby. This Agreement has been duly authorized, executed and delivered by the Company and is a valid and binding agreement on the part of the Company, enforceable against the Company in accordance with its terms subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors’ rights and to general principles of equity. The performance of this Agreement and the consummation of the transactions herein contemplated will not result in a breach or violation of any of the terms and provisions of, or constitute a default under:

 

(i)             any Material Agreement to which the Company or any subsidiary is a party or by which the Company or any subsidiary or their respective properties may be bound;

 

(ii)            the certificate or articles of incorporation or bylaws of the Company, or

 

(iii)           any applicable law, order, rule, regulation, writ, injunction, judgment or decree of any court, government or governmental agency or body, domestic or foreign, having jurisdiction over the Company or any subsidiary or their respective properties.

 

(i)             No consent, approval, authorization or order of or qualification with any court, governmental agency or body, domestic or foreign, having jurisdiction over the Company or over its properties is required for the execution and delivery of this Agreement and the consummation by the Company of the transactions herein contemplated, except such as may be required under the Securities Act, the Exchange Act, the Trust Indenture Act, or under state or other securities or blue sky laws, all of which requirements have been satisfied.

 

(j)             Except as is otherwise expressly described in or incorporated by reference into the Registration Statement or Prospectus, there is neither pending nor, to the best of the Company’s knowledge, threatened, any action, suit, claim or proceeding against the Company or any subsidiary or any of their respective officers or properties, assets or rights before any court, government or governmental agency or body, domestic or foreign, having jurisdiction there over which, if successful, would be likely to (A) result in any material adverse change in the condition (financial or otherwise), earnings, operations or business of the Company or might materially and adversely affect its properties, assets or rights, or (B) prevent consummation of the transactions contemplated hereby.

 

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(k)            The authorized, issued and outstanding capital stock of the Company is as set forth in the Prospectus and the shares of issued and outstanding Common Stock set forth thereunder have been duly authorized, validly issued, are fully paid and non-assessable, have been issued in compliance with all federal and state securities laws, were not issued in violation of or subject to any preemptive rights or other rights to subscribe for or purchase securities, and the authorized and outstanding capital stock of the Company conforms in all material respects with the statements relating thereto contained or incorporated by reference in the Registration Statement and the Prospectus. The Notes to be sold hereunder by the Company have been duly authorized for issuance and sale pursuant to the Indenture and this Agreement and, when issued and delivered against payment therefor in accordance with the terms of the Indenture and this Agreement, will be duly and validly issued and fully paid and non-assessable and will constitute valid and legally binding obligations of the Company enforceable in accordance with their terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors’ rights and to general principles of equity and will be sold free and clear of any pledge, lien, security interest, encumbrance, claim or equitable interest; and no preemptive right, co-sale right, registration right, right of first refusal or other similar right of shareholders exists with respect to any of the Notes to be sold hereunder by the Company or the issuance and sale thereof.

 

(l)             KPMG, LLP, which has expressed its opinion with respect to certain of the financial statements filed or incorporated by reference as part of the Registration Statement, is an independent accounting firm within the meaning of the Securities Act. The financial statements of the Company set forth or incorporated by reference in the Registration Statement and Prospectus comply in all material respects with the requirements of the Securities Act and fairly present the financial position and the results of operations of the Company at the respective dates and for the respective periods to which they apply in accordance with generally accepted accounting principles consistently applied throughout the periods involved; and the supporting schedules included or incorporated by reference in the Registration Statement present fairly the information required to be stated therein.

 

(m)           Subsequent to the respective dates as of which information is given in the Registration Statement and Prospectus, except as is otherwise disclosed in the Registration Statement or Prospectus or as is otherwise incorporated into the Registration Statement pursuant to the Securities Act, there has not been (i) any material adverse change in the condition, financial or otherwise, earnings, affairs or business prospects of the Company or any subsidiary, or (ii) any material transactions entered into by the Company, or any of its subsidiaries, other than those in the ordinary course of business, including, without limitation:

 

(i)             any material change, or any development involving a material adverse change, in the capital stock or long-term debt (including any capitalized lease obligation) or material increase in the short-term debt of the Company;

 

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(ii)            any material issuance of options (other than to directors, consultants and employees of the Company), warrants, convertible securities or other rights to purchase the capital stock of the Company;

 

(iii)           any material adverse change in or affecting the condition (financial or otherwise), earnings, operations, business or business prospects, management, financial position, shareholders’ equity, results of operations or general condition of the Company;

 

(iv)           any transaction entered into by the Company that is material to the Company, except transactions entered into by the Company in the ordinary course of business that are consistent with past practices (including without limitation any securitization transaction);

 

(v)            any material obligation, direct or contingent, incurred by the Company, except obligations incurred in the ordinary course of business; or

 

(vi)           any loss or damage (whether or not insured) sustained to the property of the Company, which has a material adverse effect on the condition (financial or otherwise), earnings, operations or business of the Company.

 

(n)            Except as is otherwise expressly disclosed in the Registration Statement or Prospectus or as is otherwise incorporated into the Registration Statement pursuant to the Securities Act:

 

(i)             the Company and its subsidiaries have good and marketable title to all of the property, real and personal, and assets described in the Registration Statement or Prospectus as being owned by them, free and clear of any and all pledges, liens, security interests, encumbrances, equities, charges or claims, other than those set forth or described in the Registration